Asia’s emerging markets are most attractive for PE investments, say LPs

Jakarta, Indonesia. Photo: Sopan Sopian/Pixabay

A majority of Asia-Pacific and North American limited partners (LPs) see Asia’s emerging private equity markets as offering the most attractive investment opportunities, the latest Coller Capital Global Private Equity Barometer shows.

Southeast Asia emerged as the most attractive emerging market for PE investments in the next three years, favoured by about 70 per cent of the 113 investors surveyed by Coller. Greater China and India followed close behind.

“LPs are clearly favouring Asian emerging private equity, with South East Asia topping the list of attractive emerging private equity markets,” said Peter Kim, Head of Asia at Coller Capital.

Coller Capital Global Private Equity Barometer

The report said the three-year views of investors are clearly important because two in five LPs report that they have been disappointed by the performance of their emerging private equity portfolios over time, unchanged from the Barometer of Winter 2015-16.

The Barometer polled 113 PE funds investors based in North America, Europe, and the Asia-Pacific region, including the Middle East. About 23 per cent of the respondents have total assets under management of over $50 billion and 29 per cent are from public pension funds.

Overall, about 90 per cent of LPs surveyed believe that their portfolios are facing significant risks to their medium-term PE returns from the current macro-environment and high asset prices.

A large majority of Asia-Pacific and North American LPs believe their PE portfolios need modifications to prepare them for the next economic downturn while only 45 per cent of their European counterparts see such a need.

Over the next five years, investors also expect a divergence between GPs in fund terms and conditions and they generally expect to see “the pendulum swinging in investors’ favour.”

“We have experienced one of the longest stock market expansions in history but investors know that winter is coming. They are telling us that differences in the quality of managers’ strategies and teams will again lead to a significant divergence of returns between GPs – just as it did in the GFC,” said Jeremy Coller, Founder and Chief Investment Officer of Coller Capital.

LPs, however, continue to be optimistic when it comes to returns. According to the barometer, 80 per cent of LPs expect to achieve annual net returns of more than 11 per cent from across their PE portfolios in the next 3-5 years. About 15 per cent of the respondents forecast net returns of over 16 per cent.

Coller Capital Global Private Equity Barometer

Around half of the LPs surveyed said that PE will see an influx of ‘retail’ money from private individuals in the next few years – however, investors are far from convinced that this would be a good thing. The report showed that three-quarters of LPs think that the risks of private equity make it unsuitable for direct investment by less sophisticated retail investors.

The report also noted how competition between investors forced LPs to settle for smaller-than-desired commitments to PE funds on multiple occasions in the previous 12 months.

In the 2015 survey, 42 per cent of investors said they had their requested commitment to new private equity funds scaled back on multiple occasions in the previous 12 months. The current survey showed over half of LPs have scaled back.

The areas where this is happening most often are venture capital and mid-market buyout funds, investors said.

Co-investing also continues to gain popularity, with almost 70 per cent of PE investors co-investing alongside their GPs, and 44 per cent of LPs saying they are proactive in seeking out co-investment opportunities.

However, two-fifths of the LPs say they lack the resources to meet their managers’ deadlines for co-investments while around a fifth cite competition between investors as a drag on their co-investment programmes.

Investors are also concerned about private equity’s reputation, noting that criticism of PE by politicians and the media has recently grown louder.

Specifically, three-quarters of investors in all regions of the world say it is incumbent on national and regional venture capital associations to do more to explain the industry and defend its licence to operate

But they are fairly evenly split as to whether the industry should release information on their portfolio company decisions to a wider group of stakeholders, or whether the industry’s current levels of confidentiality are necessary for GPs to be able to effect rapid change.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.